How to get 0% APR for 24 months on balance transfers?

Q: I had gotten a credit card with 24 months of no interest back in 2011. It’s now 2014 and the economy is better than it was back then, so you would think that the transfer offers would be comparable or even better. But everything I’m seeing is shorter… what gives? How can I get one for 24 months?

A: Here’s the problem. The Federal Reserve has said they expect to start raising interest rates in late 2015, but given Janet Yellen’s recent guidance even that date seems uncertain. It’s no coincidence that the longest 0% offers currently available will be ending around that same time.When the Fed raises the rates banks must pay (the Federal Discount Rate), banks’ cost of funds go up and balance transfer offers become accordingly more expensive for issuers to make available as an inducement.

The prime rate and federal funds rate

Right now (and ever since 2009) the Fed has kept rates at no higher than 0.25%.  So it’s quite affordable for a bank to borrow money at 0.25% and give it to you at 0%. In reality, the banks actually can often borrow at 0% from the Federal Discount Window (the central bank’s credit facility for large banks), so there is no cost at all involved with incentivizing consumers to shift their balances over from a competitor’s card.

But once the Fed rate eventually start climbing, it will be costing credit card companies more to lend money. That’s expected by late 2015, possibly sooner if unemployment reaches 6.5% or inflation increases to 2.5%. But, it’s hard to know what will happen given our country’s activist monetary policy. The great recession left a lot of scars and the Fed is still trying to clean up the mess and nudge the economy forward with its interest rate policies.

This is why they’re being cautious with how long their balance transfer offers are. They don’t want to be bogged down with that liability in a rising rate environment.

For that reason, until we get more certainty about the exact schedule of how and when the Fed will increase rates, don’t expect to see any 24 month balance transfers.

So what’s the longest in 2014?

Right now the absolute best you can find will be 0% for 18 months from Discover. Some issuers like Chase, Discover, and Bank of America are even going with shorter offers. Whatever the case, you definitely will NOT find one for 24 months this year.

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